If they're not paying you, it's not traction

Here's my working definition:

‍Traction is revenue from customers buying the product you're actually selling, in a pattern you can repeat on purpose.

Three parts, and you need all three. Customers, meaning the people who will use the thing, not the people funding you to build it. Revenue, meaning money changing hands, not interest or intent. Repeatable, meaning it happened because of something you did and can do again, not because your cousin runs procurement at one company.

When this goes wrong, it usually goes wrong on the first two tests.

One scope note before we go further. I'm writing about businesses that sell a product to customers who pay for it, which describes most of what comes through our doors. If you're in biotech, deep tech, or any heavily regulated space where the approval path runs years ahead of the first sale, revenue isn't the measuring stick yet, and technical and regulatory milestones do that job instead. If you're building a consumer product where scale comes first and monetization comes later, engagement genuinely is your early evidence.

Traction is not, not even a little:

• Government funding
• Pitch competition wins
• Angel or VC investment
• Conversations you've had with investors

Real traction comes from paying customers. Nobody else.

And if those customers are not giving you money, it is not traction.

Engagement is not traction either

There's a second category that gets mistaken for traction just as often. I'd call it engagement, and it includes:

• Meetings booked with buyers
• Free users
• Unpaid pilots
• Demos delivered
• Waitlist signups

These are all good things. Some of them are genuine validation of an early assumption, and you should absolutely be chasing them. But they are not traction, and calling them traction will not fool anyone who has done this before.

The validation ladder

If you're trying to convince a funder – an angel, a government program, or a VC – that your startup is worth backing, there's a rough hierarchy of valuable validation. No hard and fast rules here, and it looks different across industries and verticals, but it generally runs something like this, from weakest to strongest:

1. Waitlist signups before launch with no commitment to buy
2. Verbal expressions of interest from potential buyers
3. A signed letter of intent with no price and no commitment
4. A signed letter of intent with a price but no commitment
5. A free pilot
6. Waitlist signups with a credit card attached for purchase at launch
7. A paid pilot with no commitment to buy afterward
8. A signed letter of intent with pricing and a conditional commitment to buy
9. A paid pilot with agreed pricing post-pilot
10. A paid pilot with a conditional purchase in place if pilot objectives are met
11. A signed, binding purchase agreement at an agreed price, not yet invoiced

Everything on that list is good. But none of it is traction.

Traction kicks in when you are getting paid real money for your actual product.

A word on the letters of intent, which take up three of those eleven rungs. They are cheap to sign and carry no penalty for walking away, which is why they sit low. A signed LOI tells you that someone was willing to spend five minutes and zero dollars. That is worth something. It is not worth what founders tend to put in their decks.

Which is the point of the top rung. A letter of intent is non-binding by design. That is the entire purpose of the format. The moment a document is priced, committed and actually enforceable, it has stopped being a letter of intent and become a purchase agreement, and that is why it outranks everything else here. So the question to ask about your best piece of paper is not whether it sounds committed. It's whether your buyer can walk away without consequence. If they can, you don't have rung eleven. You have rung eight with better adjectives.

And, look. If you want to call a paid pilot traction, fine. I won't fight you on it. But you have to retract it if that pilot doesn't turn into a sale.

Notice what the real line is here. It isn't paid versus unpaid. It's whether the customer is buying the product or funding an experiment. A pilot is an experiment that someone agreed to pay for, and experiments are allowed to fail without anyone breaking a promise. That's the whole difference.

Actual traction

Again, in increasing order of value:

1. Non-recurring revenue. A one-year contract with no commitment to renew. Basically a paid pilot with a bit more oomph.
2. Recurring revenue. A true, signed SaaS contract.
3. Recurring revenue with high activation and engagement on the product (the best you can hope for with early sales before you actually face a customer renewal/cancelation decision).
4. Recurring revenue with high retention month over month, and year over year.
5. Recurring revenue with net negative churn. The upsell from existing customers exceeds the revenue lost to churn.
6. Growth revenue. Recurring revenue with a model behind it that demonstrates measurable, sustainable revenue growth.

One thing that appears nowhere on that list: services revenue. If you're billing for your team's time to keep the lights on, that's a real business and an honourable one, but it is not product traction, and investors will discount it close to zero. Be honest with yourself about whether you're building a product company or a consultancy with a roadmap attached.

A word on growth revenue

That last one deserves its own paragraph, because it's the one founders most want to claim and least often have.

Growth revenue means you've proven a repeatable sales and retention model.

It means you've achieved true product market fit.

You have many customers who stay happy year over year.

You've reached the point where you have so many happy customers that they're generating leads for you, and the market starts pulling you along instead of you pushing into it.

This typically takes years. If you're wondering whether you're there yet, you probably aren't.

Why this matters

None of this is about being pedantic with vocabulary – it's about knowing where you actually stand, and being able to speak and pitch from a place of confident data.

Founders who (innocently or otherwise) inflate engagement into traction tend to raise on a story their metrics can't carry, and then spend the next year explaining a gap they created themselves. Founders who are honest about which rung they're on can point at the next one and go get it. That second group moves faster, almost every time.

So be clear with yourself about where you are. Then go get paid.

Ed Martin is the President & CEO of Genesis, a tech startup incubator in St. John’s, Newfoundland. He previously co-founded Clockwork Fox Studios (Zorbit’s Math Adventure), a venture-backed edtech company that was acquired in 2021. Learn more about what we do.